GM purchase has some skeptical of balancing act

The owner of a car company can decide how many cars to make, to paint red, to send to dealerships.

The Obama administration, which plans to buy about 70 percent of General Motors, insists it does not want to be that kind of owner.

Senior officials say they are focused solely on forcing critical financial repairs at GM and other companies in which the government plans to take large ownership stakes. They do not want to get dragged into the weeds of daily decision-making.

But it's not easy to keep hands in pockets. In pursuing its financial goals, the administration has become involved in decisions such as how many cars GM and Chrysler should make, how much money auto financier GMAC should lend and which business units Citigroup should sell.

The government also increasingly has chosen to install its own directors on the companies' boards, establishing influence that could endure for years.

Not since World War II has the federal government exerted so much influence over so many private companies. The Obama administration, which inherited majority stakes in American International Group, Fannie Mae and Freddie Mac, is in the process of buying large stakes in four more companies: GM, Chrysler, Citigroup and GMAC.

As the government continues to deepen its involvement, officials say they are trying to find the right balance between their conclusion that no one else can fix the companies and their concern that public ownership is inherently corrosive.

But even within the administration, there is debate about where to draw that line. And now that the door is open, others are piling through.

An array of advocacy groups, including unions, environmental advocates and shareholder activists, see opportunities to wrest long-sought concessions from businesses that are now beholden to taxpayers.

The government has been sucked into political controversies over the size of executive paychecks and bonuses, the employment of foreign workers and the right steps to prevent home foreclosures.

Meanwhile, businesses and industry groups warn that government disrespect for contracts or investors will shake market confidence for years.

Anything they do here will be part of the history and the record as far as the markets go, said a senior executive at one of the companies in which the government plans to take a stake. You're not playing for the next two years, you're playing for the next 100 years.

Senior officials say the investments have been necessary because the firms have needed money and could not afford to repay new loans. They say the government is focused on clearing a path for the companies to return to health, then allowing private owners to complete the work.

The broad principles are: Get out as quickly as possible, do what's necessary to ensure there's a viable business plan being competently implemented and stay out of the day-to-day,

Lawrence Summers, President Obama's chief economic adviser, said in an interview.

Summers and other officials say public involvement damages companies, largely by creating political uncertainties. The administration, for instance, cannot control demands from Congress, which in turn is subject to the whims of voters. This scares away customers, freezes long-term planning and makes it harder to compete with rivals, experts say. There also can be conflicts between the public interest and maximizing profits.

To avoid those issues, the government at first attempted to support companies with loans. Citigroup, for example, got $45 billion to help it absorb loan losses. GM got $13.4 billion, buying it several months to create its own restructuring plan.

But the loans have failed to stabilize the most troubled firms, forcing the government instead to invest money the companies are under no obligation to return. The government plans to buy 8 percent of Chrysler, a third of Citigroup, about 35 percent of GMAC and about 70 percent of GM. It already owns 80 percent of AIG, Fannie Mae and Freddie Mac.

Even as it acts, the Obama administration has repeatedly called itself a reluctant investor. "I want to disabuse people of this notion that somehow we enjoy meddling in the private sector," Obama said in March.

That reluctance has been most evident as the administration pushes companies to do things politicians would normally criticize: Close business units, fire employees, cut off the weakest customers. Particularly in those instances, the government has tried to distinguish between its broad directions and the companies' specific decisions.

When Chrysler this month announced it would sever ties with nearly 800 dealers around the country, the Treasury Department issued a news release emphasizing that the company had worked out the details.

The Task Force played no role in deciding which dealers, or how many dealers, were part of Chrysler's announcement today, the Treasury said.

The administration's autos task force has advised the companies to trim their operations, lower sales projections and shed their creditors' claims. It played a key role in urging Chrysler employees and investors to make the sacrifices necessary to allow the company to restructure in bankruptcy, and it is pushing GM down a similar path. It ousted former GM chief executive Richard Wagoner and orchestrated Chrysler's planned merger with Fiat.

Some analysts say the government needs to roll up its sleeves.

"If they are too afraid to step in, these poor outcomes will continue or worsen," said Susan Helper, an economics professor at Case Western Reserve University who specializes in the auto industry. But Helper and others also caution that the government must eventually defer to managers who know how to make good, desirable cars.

The handling of banks, by contrast, has been guided by Summers, an economist who thinks companies should manage their own affairs.

The administration plans to rely on banking regulators who already supervise Citigroup and GMAC to push them back to health.

Some experts caution that regulators are ill-equipped to represent the government's interests as an investor.

"It just isn't designed to do this," said Karen Shaw Petrou, managing partner at Federal Financial Analytics. "It's another example of Treasury looking for a least-worst solution."